Credit risk management is essential for financial performance of a bank: A study on Bank Asia Limited

Abstract

Bank Asia Limited is one of the most renowned banks in the banking sector of Bangladesh. The report is based on “Credit Risk Management is Essential for Financial Performance of a Bank: A Study on Bank Asia Limited”. In the 1st chapter, my working experience is included. In the 2nd chapter of the report, organizational analysis is conducted to see how the banks perform in various areas. In the 3rd chapter of this report, two methods including ratio analysis and hypothesis testing have been used to determine how credit risk management makes impact on the financial performance of Bank Asia Limited. In ratio analysis, yearly analysis is done to show the performance of my organization from 2015 to 2019. Moreover, in comparative analysis, I compare with Bank Asia’s performance with other 11 banks. It is mentionable that these 11 banks are selected after talking with Bank Asia officials. Bank Asia mainly consider these 11 banks as their key competitors. In ratio analysis, it is evident that the performance of the organization is consistent from 2015 to 2019 which highlights a financial stability of the organization. Some ratios like NPL ratio, Provision for loan loss ratio, Credit Deposit Ratio etc. are quite impressive for this organization. But the organization’s ROA, ROE is relatively lower than its competitors. In hypothesis testing, it is noticed that there is negative relationship between capital adequacy ratio and non-performing loan ratio. Moreover, it is also evident that credit deposit ratio and net interest margin ratio have significant influence on the bank’s ROA which is an important performance indicator. Furthermore, it is noticed that provision for loan loss ratio has negative impact on bank’s ROE. In addition, credit deposit ratio has positive impact on NPL ratio. The bank is highly conscious in terms of maintaining CRM system in an efficient way. Some recommendations are provided in chapter 3 regarding how the bank can improve its performance indicators.